French smartphone users get holiday gift

Analysts say the development is a disaster for France's main mobile operators and could lead to a major shake-up in the market if users move to lower-priced virtual operators.

French telecommunications companies have been pushed by the EU and French government to end lower value added tax (VAT) charges for Internet services, which some mobile operators have applied to some smartphone contracts.

These customers may now escape their one- or two-year contracts under which they received their smartphones at a heavily discounted price thanks to French consumer protection laws.

They get to keep their smartphones and not pay any penalties and can switch to another operator of their choice.

"As there has been a substantial modification of the contract, there is the possibility for clients to quit their operator within four months from the moment the higher rates come into force, which is on February 1," Orange, one of France's three main mobile operators, said in a letter to clients.

Another of the main operators, SFR, plans to send a similar letter to its clients before the end of the year.

Bouygues has not announced yet which of its customer plans are affected and said it intends to implement progressively the increase in VAT from 5.5 to 19.6 percent.

"It's normal in a case like this that a client has the opportunity to choose a new operator that has not raised its rates despite the increase in the VAT," said Thierry Saniez, the managing director of the consumers association CLCV.

"It's fantastic for the client, but economically, it's catastrophic for the operators," said telecommunications analyst Stephane Dubreuil.

In order to attract new clients, French mobile operators offer smartphones at highly subsidised rates, but clients have to sign service contracts lasting one or two years.

If a client "paid 99 euros for an iPhone -- which costs nearly 800 euros -- yes, that's a concern," conceded a spokesman for France Telecom, which offers mobile services under its Orange brand.

The development comes during the holiday buying spree when mobile operators earn 20 to 30 percent of their annual revenue and will affect primarily customers on their top-priced service plans.

Virtual mobile operators, which buy time in bulk from the main operators and generally offer lower prices, also see this as a holiday gift as they have an opportunity to pick up clients that are high users of services.

Pascal Rialland, managing director of Omea Telecom group which runs Virgin Mobile and several other virtual operators, said they are "quite euphoric" about the development.

"It is an important moment, as many (clients) can come to companies like us that offer lower rather than higher rates," he told AFP.

Rialland said virtual operators such as his that had focused on low-end consumers have added offers to attract smartphone users, which he said are also looking to save money.

"Today, no one is indifferent to the chance to lower their bills, even high-spending consumers," he said.

Orange downplayed the potential for a major shake-up in the market.

"All operators have decided to recover this increase in VAT and we are confident of our offers," said a spokesman.

"There won't be a major shift" on the market, he added. "Yes, on the margins there will be clients who change but that will happen in all directions."